NIKE, Inc. (NYSE: NKE)

NIKE’s fiscal 2025 results reflected the most challenging period of the company’s multi-year transformation strategy. Full-year revenues of $46.3 billion decreased 10% on a reported basis and 9% on a currency-neutral basis, with the fourth quarter showing the largest impact from the company’s Win Now actions. The revenue decline was broad-based across all geographies and channels, reflecting both strategic decisions to reduce off-brand products and challenging market conditions.

Fourth quarter performance was particularly pressured, with revenues declining 12% to $11.1 billion, driven by declines in both NIKE Direct and Wholesale channels. NIKE Direct revenues decreased 14% to $4.4 billion, primarily due to a 26% decline in digital sales, partially offset by a 2% increase in NIKE-owned stores. Wholesale revenues fell 9% to $6.4 billion as the company continued rightsizing its distribution strategy.

Gross margin compression was significant, with full-year gross margin declining 190 basis points to 42.7% and Q4 gross margin decreasing 440 basis points to 40.3%. The margin pressure was primarily driven by higher discounts to clear inventory, unfavorable channel mix shifts, and higher inventory obsolescence reserves, partially offset by lower product costs.

Profitability was materially impacted, with full-year net income declining 44% to $3.2 billion and diluted earnings per share decreasing 42% to $2.16. Fourth quarter results were particularly challenging, with net income falling 86% to $0.2 billion and diluted EPS declining 86% to $0.14. The decline reflected both volume deleverage and significant margin compression.

Despite the challenging operating results, NIKE demonstrated strong operational cash flow generation and maintained its commitment to returning capital to shareholders. The company returned $5.3 billion to shareholders in fiscal 2025, including $2.3 billion in dividends (up 6%) and $3.0 billion in share repurchases.

NIKE Brand revenues declined 9% for the full year to $44.7 billion and 11% in Q4 to $10.8 billion on both reported and currency-neutral bases. The decline was driven by strategic decisions to reduce off-brand products and the challenging retail environment across all key categories and geographies.

NIKE Direct faced significant headwinds with full-year revenues declining 13% to $18.8 billion (12% currency-neutral). The channel was particularly impacted by digital sales, which decreased 20% for the full year, while NIKE-owned stores remained flat. Fourth quarter NIKE Direct performance showed a 14% decline, with digital sales falling 26% as the company focused on improving full-price sell-through.

Wholesale revenues decreased 7% for the full year to $25.9 billion (6% currency-neutral) and 9% in Q4 to $6.4 billion. The wholesale channel showed relative resilience compared to direct channels, benefiting from the company’s efforts to strengthen wholesale partnerships and improve inventory discipline across the distribution network.

Converse continued to face significant challenges with full-year revenues declining 19% to $1.7 billion (18% currency-neutral) and Q4 revenues falling 26% to $357 million. The decline was broad-based across all territories as the brand faced pressure from changing consumer preferences and competitive challenges in the lifestyle footwear segment.

Product category performance showed declines across all major segments. Footwear revenues decreased 12% for the full year to $29.5 billion, apparel fell 6% to $13.0 billion, and equipment increased 6% to $2.2 billion. Jordan Brand, while still a key growth driver, experienced a 16% decline to $7.3 billion as the company focused on maintaining brand heat through scarcity and premium positioning.

North America remained NIKE’s largest market but experienced 9% revenue decline for the full year to $19.6 billion (8% currency-neutral). Q4 performance showed an 11% decline to $4.7 billion, reflecting the continued impact of retail inventory normalization and strategic decisions to reduce off-brand products. The region was particularly impacted by footwear declines of 13% for the full year.

Europe, Middle East & Africa (EMEA) revenues declined 10% for the full year to $12.3 billion on both reported and currency-neutral bases. Q4 revenues decreased 9% to $3.0 billion, with the region facing challenges across all major categories. Footwear declined 11% for the full year while apparel fell 9%, reflecting both market challenges and strategic repositioning efforts.

Greater China faced the most significant headwinds with full-year revenues declining 13% to $6.6 billion (12% currency-neutral). Q4 performance was particularly challenging with a 21% decline to $1.5 billion, as the region continued to face macroeconomic pressures and intense local competition in the athletic footwear and apparel market.

Asia Pacific & Latin America showed relative resilience with full-year revenues declining 7% to $6.3 billion on a reported basis but only 3% on a currency-neutral basis. Q4 revenues decreased 8% to $1.6 billion, with the region benefiting from strength in select markets and successful localization strategies.

All regions experienced margin pressure as NIKE implemented its Win Now actions, including strategic inventory clearance and distribution optimization. However, these actions are expected to position the company for improved performance as the business stabilizes and new product innovation cycles take effect.

NIKE is executing a comprehensive strategic transformation through its Win Now actions and newly announced sport offense strategy. These initiatives represent the company’s commitment to repositioning for sustainable long-term growth despite near-term financial headwinds.

Win Now Actions Progress

• Inventory Optimization: Inventories remained flat at $7.5 billion year-over-year despite revenue declines, demonstrating improved inventory discipline and clearance of off-brand products
• Distribution Refinement: Continued rightsizing wholesale partnerships and enhancing product allocation to drive full-price sell-through
• Cost Management: Operating overhead expenses decreased 7% for the full year to $11.4 billion, driven by operational efficiencies and prior year restructuring benefits
• Digital Transformation: Focused investment in digital capabilities and data analytics to enhance consumer experience and operational efficiency

New Sport Offense Strategy

CEO Elliott Hill introduced the “sport offense” realignment to accelerate transformation efforts. This strategy focuses on four key pillars:

• Drive Distinction in Key Sports: Deepening focus on core sports categories where NIKE has authentic credibility and growth potential
• Build Complete Product Portfolio: Ensuring comprehensive offerings across performance, lifestyle, and premium segments
• Create Inspiring Stories: Developing marketing and brand narratives that connect emotionally with consumers and athletes
• Elevate the Entire Marketplace: Working with retail partners to enhance the overall consumer experience and drive category growth

These strategic initiatives aim to restore NIKE’s growth trajectory by the second half of fiscal 2026, with initial benefits expected to become visible throughout fiscal 2026. The company expects the headwinds from Win Now actions to moderate from Q4 levels as inventory optimization and distribution refinement efforts stabilize.

Investment in demand creation increased 9% for the full year to $4.7 billion, primarily due to higher brand marketing and sports marketing expenses. This investment reflects NIKE’s commitment to maintaining brand strength and market position during the transformation period.

NIKE maintained a strong financial position throughout fiscal 2025, providing the flexibility to execute strategic initiatives while continuing robust shareholder returns:

• Cash Position: $9.2 billion in cash and short-term investments at fiscal year-end, down $2.4 billion from prior year due to strategic capital allocation
• Inventory Management: Inventories of $7.5 billion remained flat year-over-year despite revenue declines, demonstrating improved inventory discipline
• Total Assets: $36.6 billion, down 4% from prior year, reflecting lower cash balances and continued asset optimization
• Debt Position: Long-term debt of $8.0 billion with strong credit profile and manageable debt service requirements
• Shareholders’ Equity: $13.2 billion, providing substantial financial flexibility for strategic investments

Capital Allocation Strategy

NIKE demonstrated disciplined capital allocation despite challenging operating conditions:

• $5.3 billion returned to shareholders in fiscal 2025, including $2.3 billion in dividends and $3.0 billion in share repurchases
• Maintained 23-year track record of consecutive dividend increases with 6% dividend growth
• Repurchased 37.6 million shares as part of the four-year, $18 billion program approved in June 2022
• $122.6 million shares repurchased under current program for approximately $12.0 billion

The company’s strong balance sheet and cash generation capabilities provide significant strategic flexibility to continue investing in transformation initiatives, maintain dividend growth, and pursue value-enhancing opportunities. NIKE’s financial strength positions it well to navigate the current challenging environment while investing for long-term growth.

Working capital management showed improvement with accounts receivable increasing only 7% to $4.7 billion despite seasonal patterns, while accounts payable increased 22% to $3.5 billion, reflecting improved supplier payment optimization and cash flow management.

NIKE’s leadership expressed confidence in the strategic direction while acknowledging the challenging near-term environment. The company expects business improvement as Win Now actions gain traction and the sport offense strategy drives operational excellence.

Key Strategic Priorities

• Timeline for Recovery: Expect headwinds to moderate from Q4 levels with meaningful improvement targeted for second half of fiscal 2026
• Innovation Pipeline: Continued investment in product innovation and technology to drive differentiation in key sports categories
• Operational Excellence: Focus on supply chain optimization, inventory management, and distribution efficiency
• Digital Capabilities: Enhanced digital consumer experiences and data-driven decision making across all business functions

Market Position and Competitive Advantages

Despite near-term challenges, NIKE’s fundamental competitive advantages remain intact:

• World’s leading athletic brand with unparalleled global reach and consumer loyalty
• Deep relationships with elite athletes and sports organizations across key categories
• Innovation capabilities in product development, materials science, and digital experiences
• Strong financial position providing flexibility for strategic investments and market share gains

Management emphasized that the current transformation is necessary to position NIKE for sustainable long-term growth in an evolving retail landscape. The company is confident that the combination of Win Now actions and sport offense strategy will restore growth momentum and margin expansion over time.

CFO Matthew Friend noted: “The fourth quarter reflected the largest financial impact from our Win Now actions, and we expect the headwinds to moderate from here. I am confident in our ability to navigate through this current dynamic and uncertain environment by focusing on what we can control and executing our Win Now actions.”